“Ease of doing business In India” seems to be stuck despite being the focus of present NDA Govt. PM Modi, determined to bring India in top 50 places to do business, has directed ministers/bureaucrats to reduce procedures/paperwork so as to improve “Ease of Doing Business” ranking of India. However, despite all the push for last 2/3 years, India has merely limped to the rank of 130 from earlier 131( just 1 point) as per Ease of Business report released by World Bank. One wonders why has Govt not been able to solve this not so complex puzzle, despite present dynamic leadership and noble intentions and what could be the reason for such a dismal performance on this count?
Interestingly the answer doesn’t lie in the political leadership of present times but rather curiously designed governance structure of India which has been designed to rule than govern. The complex web of the system which on the face of it, appears to be a solution of all problems but in fact is the root cause of all problems plaguing India today.
Indian Govt as per its official website has 52 ministries, 16 APEX offices, 53 departments, and some 85 commissions, not to count State / Junior ministries, an army of bureaucrats and millions of govt servants servicing this large country (2nd most populous / 7th largest economy). However how many ministries (departments) the USA, an economy which is 10 times bigger in terms of GDP has? Just 15 departments and China, a country much bigger than India in terms of population, area, and size of the economy? Just 20 ministries and 5 APEX offices!!! Probably there lies the secret of governance or rather lack of !! One can fairly conclude given the state of affairs in India vs China / USA that quality of governance seems to be inversely proportional to the size of Govt.
A ministry or department once formed behaves like a living organism. It acquires its own identity, shape, and size where it needs energy (budget/power) to survive, grow and stay relevant. Unfortunately, more budgets are granted only if the ministry is more relevant/visible and there lies all the pain. To stay relevant, ministries draft more rules, notifications and circular so that more work is created and more budgets are allocated which in turn create more hindrance for normal businesses. For example, consider the case of the ministry of labor.
Ministry of labor in an ideal world, shall look after the welfare of labor and draft rules related to minimum wages (Ironically a state subject), monitor issues related to labor wages and work conditions. However if one just make policies and issue advisory, it reduces the scope of work and in turn, causes a reduction in budget and power. So ministry of labor does not only stop at labor issues but also worry about “Healthcare” and operates hospitals as well. No not ministry of health but it is the ministry of labor which focusses on providing world-class health care to the workers of India. It has a department called ESIC ( Employee State Insurance Corporation) which collects close to 6.5% of wages earned by an employee and use this money to provide healthcare. Are ESIC hospitals best in the country? NO. Are these hospitals really sought after by all workers? well NO. Is there a perfect alignment of interest among hospitals and workers? NO. Needless to say, the condition of ESIC remains pathetic like any Govt hospital with the poor quality of care, zero accountability, and dismal service standards.
So if there is no operational excellence, no benefit or advantage then why Govt needs to run hospitals and force more and more people to the path of ESIC rather than giving them freedom of buying health insurance and choose hospitals? Interestingly Govt rather than reforming ESIC, keep on bringing more and more people under its ambit ( new limit is 21,000 monthly wage) because core issue is not about the welfare of workers but about the power of labor ministry and ESIC. Without this massive operating outlay, the ministries will be faced with budget cuts / reduced power, a scenario abhorred by bureaucrats and ministers alike. This scenario is not limited to the ministry of labor alone. Every day, every ministry/department is busy thinking of the laws/rules which can increase intervention of the state to next level. Recently parliament passed a bill mandating employers to provide 26 weeks of paid leave to pregnant women in order to come at par with Norwegian countries, however little did the well-meaning minister realized that it will make married woman highly unemployable to small businesses and will again create a rush for Govt jobs with all these perks. There is another minister thinking of ways to control portion sizes served by hotels and list goes on!
PM Modi in his address to NASSCOM ( industry body of IT companies) pointed out that the success of the famed Indian software industry is not because of government but rather in spite of it. He said that IT industry grew as Govt had little understanding of the sector and by the time Govt took notice of it, it had become quite big. Unfortunately, despite such astute understanding, Govt continues to meddle in any industry be it hotels, small businesses or any other flourishing industry. One good example of Govt intervention is the launch of StartupIndia in the otherwise flourishing segment.
Startup India program was launched last year with big fanfare and in a year, we have Startup India events, Startup sessions and even a Startup India policy whose main highlight is that now a nodal body can certify startups!! With dept. at work with all ideas on nodal bodies/ministries/agencies, have startups in India taken off?? Well if one looks at data, 2016 was probably the worst year in terms of VC investments ( lowest in last many years) and policy confusion. So much Govt attention has only muddled startup scene as earlier startups like any other company were taxed on profits and now thanks to overactive Govt, they are getting taxed even on investments!! so much so for ease of business and proactive Govt!
This is not the case with the just ministry of labor or Startup India. We still have a ministry of Steel and we also have a ministry of heavy industries. We have a ministry of surface transport and also a ministry of railways. Tomorrow there will be a ministry of LCVs and then ministry of 22 fire trucks. Overall whole governance structure looks like a design lifted straight from famed British comedy “Yes Minister” which in Indian context looks more like Indian tragedy as the number of departments/ministries keep expanding and expanding.
So for a startup or any company, what will be the best ministry to deal with? MSME or DIPP ? or specific functional ministry depending upon core area ( Fin-tech, travel, Steel, Textile and so on so forth). Needless to say, with dozen of ministers / departments working at same matter in their parallel universe and none willing to lose an inch of control, things remain in perpetual gridlock as every ministry in order to remain relevant / powerful keep on adding its own notifications, rules, processes and thus kicking ease of business out of window.
French writer and aviator Antoine de Saint-Exupery once wrote that “Perfection is Achieved Not When There Is Nothing More to Add, But When There Is Nothing Left to Take Away”. Likewise, the ease of business can only happen if there are fewer ministries to deal with and not more and India can only improve its ranking if it reduces 52 ministries to 20 and eliminates the massive rusted bureaucracy ruling the masses in disguise of servicing them. Hence the Govt need to do the massive thinking and withdraw from the majority of areas rather than getting into every area. This needs a paradigm shift where the aim of government shall be to enable rather than to provide. An area which was well understood by PM Modi till 2014.
So the issue is why it is not happening and PM Modi, a firm believer in maximum governance and minimum government, has not able to solve this issue. And with every passing day, the present Govt looks more “House Trained” than ever ( As Sir Humphrey would have pointed out in Yes Minister).
The answer to this puzzle does not lie at the door of political leadership but at the door of Indian governance system design. India ruled for almost 800 years had an administrative system whose main task was to rule / or help rulers rather than providing governance. In 1935, Britishers relented and started giving natives a say in governance issue but the underlying system remained loyal to the masters in London. This system created an anomaly where the front face i.e political class became accountable for everything while back-end ie the bureaucracy controlled delivery as well execution of state powers.
Indian bureaucracy aka the iron frame of India became a behind the scene administrative machinery which on account of being “faceless, formless” became a formidable supreme power where its members enjoyed all fruits of the power with full permanency and without any accountability (count the no of bureaucrats convicted/ arrested for failure in delivering their duties). The whole situation aptly summed by Sir Humphrey in Yes Minister “Dear Bernard, Ministers comes and ministers go. but we remain forever”. So while political class gets judged every moment and face change of order every five years, bureaucrats remain forever to provide continuity in governance. Moreover, the majority of Ministers/politicians remain servile to bureaucracy as politicians being new to administrative set up have minimal understanding of intricacies of governance due to lack of experience as well as due to lack of time (given very high public engagements).
Hence to assume that a politician will come and reform this rusted Indian service delivery system and usher a new era of policy thinking from this same tired, an entitlement seeking, generalist army of experts, is at best a mirage and worst a daydreaming on part of the Indian public. No politician or media or judiciary can do the required change and only hope is that India will get a strong header PMO secretariat/cabinet secretary who decides that enough is enough and he or she needs to reform this massive government rather than just demanding (and getting) more and more privileges for their clan.
History tells us that last time India saw some serious reform, it didn’t come from political class but from bureaucrats. T N Seshan as an election commissioner changed forever the way elections used to happen in this country, a former bureaucrat cut all the rules/regulations in 1991 economic reform and a strong CAG head turned all crony capitalism upside down with same system, same machinery, and same people.
Hence any talk or thought of bringing India among top 50 places to do business is going to remain pipe dream till present political leadership figures out a way to minimize this vast maze of ministries, departments, APEX offices, commissions and what not, and till then God save the king!